Contributor: profit sharing communities are a totally new business model for Web 3.0 — how can using them benefit founders, developers and users?
Profit sharing communities (PSCs) are an innovative business model for the decentralized web, offering sustainable incentives for founders, developers, community contributors and users alike.
What Are Profit Sharing Communities?
Profit sharing communities are a new, fairer structure for web startups made possible by the unique affordances of the Arweave protocol. These communities give founders more control and flexibility over their projects, while granting contributors to those projects more power.
In a traditional startup, employees own equity that is unlikely to become liquid any time soon, does not grant governance rights (these are reserved for board members) and almost never issues dividends.
Read on to learn exactly how Arweave’s core features enable permanent data storage, and how this in turn powers the profit sharing community ecosystem.
What Is Arweave and the Permaweb?
Arweave is the network that powers the permaweb. With Arweave, you can pay once and store data forever. Two unique mechanisms make this possible: proof-of-access, and the data storage endowment.
The Data Storage Endowment
Together, these mechanisms allow anyone to store data on the Arweave network permanently. As well as providing a verifiable, immutable record of important historical or cultural data, there are additional benefits to using the permaweb.
For app developers, using the permaweb means a published web app requires zero ongoing maintenance and incurs no additional costs after it is deployed. For users, this means that the Arweave apps you use (and all previous versions of these apps) will always be accessible. If a website or app embeds intrusive advertising or releases a new version which collects your data to sell to third parties, you can simply continue using the previous version of the app.
What Are Profit Sharing Tokens?
Profit-sharing tokens (PSTs) allow people who build websites and apps to earn money easily and flexibly. PSTs are a novel way of incentivizing and rewarding both permaweb app founders and external contributors to a project.
When building a PST app, the developer adds a mechanism that sends small tips in AR, Arweave’s native token, to PST holders every time a user interacts with the app in a way that generates a transaction on the Arweave network. Tips are automatically distributed to PST holders in proportion to their relative PST holdings. So, if a given app has two founders who each hold 50% of the app’s PSTs, each founder will receive 50% of the user tips from the app.
Developers can determine the size of tips when building the app. Tips are often micropayments for interactions, such as sending a message or posting a status update. PSC creators can also designate larger tips for significant interactions, like pressing a donation button or trading a large quantity of tokens on an exchange. Tips can be a fixed fee for a given interaction or a percentage of the interaction’s value — the PSC creator has control over their own business model. As the app’s user base grows and more people interact with the app, individual tips can add up over time to become a significant source of revenue to sustain a founder, builder or team.
How Do Profit Sharing Communities Work?
Voting power in PSCs is determined both by how many of the community’s PSTs a person holds and for how long they are willing to hold (lock) these tokens. Specifically, voting power is calculated as lock time multiplied by token quantity. This mechanism ensures that even smaller token holders have an influence on how their community functions — if they commit to holding their PSTs for long enough, they can have just as much power as the big holders in that community.
Founders of apps can benefit greatly from the profit sharing community model, especially in comparison to the traditional startup model of fundraising by selling equity. Equity-based fundraising is stressful, time consuming and typically means company founders must sacrifice ownership in exchange for capital at unfavorable terms and in rigid, scheduled rounds.
However, with PSCs, founders can decide on their own terms and their own timeline, as well as how much ownership they wish to exchange for meaningful contributions to their app and its community. Founders can choose to keep holding their remaining tokens and accrue profits from tips over time. Or, as the tokens are liquid, founders can sell or convert them to other currencies on an exchange. This allows founders the flexibility to sell any quantity of tokens to access those potential future profits immediately, in line with market conditions.
Contributors can help communities in endless ways, from making improvements to a permaweb app, to aiding in marketing efforts, all while receiving PSTs in return. With PSCs, contributors directly own and control portions of the communities that they aid through their PST holdings, and can either continue to hold or sell their PSTs. Consequently, they are not tied to specific bosses, projects or contractual terms, and can assist as many communities as they like at any time. This provides contributors with flexibility, while also allowing them to accumulate revenue-generating ownership stakes in projects they care about.
End users also benefit from the novel features of profit sharing communities. They can buy PSTs from their favorite communities, allowing them to support these projects while also receiving a portion of the PSC’s tips over time. Users can also be spared from invasive advertising and the covert harvesting and selling of their data, as app creators now have viable methods of alternative revenue generation.
In conclusion, profit sharing communities provide a wide array of benefits to founders, contributors and end users alike.